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The strategic use of ambiguity

Author

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  • Riedel, Frank

    (Center for Mathematical Economics, Bielefeld University)

  • Sass, Linda

    (Center for Mathematical Economics, Bielefeld University)

Abstract

Ambiguity can be used as a strategic device in some situations. To demonstrate this, we propose and study a framework for normal form games where players can use Knightian uncertainty strategically. In such Ellsberg games, players may use Ellsberg urns in addition to the standard objective mixed strategies. We assume that players are ambiguity-averse in the sense of Gilboa and Schmeidler. While classical Nash equilibria remain equilibria in the new game, there arise new Ellsberg equilibria that can be quite different from Nash equilibria. A negotiation game with three players illustrates this finding. Another class of examples shows the use of ambiguity in mediation. We also highlight some conceptually interesting properties of Ellsberg equilibria in two person games with conflicting interests.

Suggested Citation

  • Riedel, Frank & Sass, Linda, 2016. "The strategic use of ambiguity," Center for Mathematical Economics Working Papers 452, Center for Mathematical Economics, Bielefeld University.
    • Handle: RePEc:bie:wpaper:452
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    References listed on IDEAS

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    Cited by:

    1. Lang, Matthias & Wambach, Achim, 2013. "The fog of fraud – Mitigating fraud by strategic ambiguity," Games and Economic Behavior, Elsevier, vol. 81(C), pages 255-275.
    2. Pierpaolo Battigalli & Simone Cerreia-Vioglio & Fabio Maccheroni & Massimo Marinacci, 2015. "Self-Confirming Equilibrium and Model Uncertainty," American Economic Review, American Economic Association, vol. 105(2), pages 646-677, February.
    3. Gaurab Aryal & Ronald Stauber, 2014. "Trembles in extensive games with ambiguity averse players," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 57(1), pages 1-40, September.

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